[Will Interest Rates Rise Again?] ③ Interest Rates on Card Loans and Saessal Loans for Low-Income Borrowers Also Increase

As market interest rates continue to rise, interest rates on long-term card loans (card loans) and Saessal Loans, which are financial products for low-income households, are also on the rise. With lending barriers in the primary financial sector increasing, the rising interest rates on financial products for low-income households are adding to their interest burden.

According to the Korea Financial Investment Association on the 22nd, the interest rate on 3-year asset-backed securities (AA+) was recorded at 4.436% (as of the 18th). This is about 0.493 percentage points higher than 3.943% on May 18, three months ago. The asset-backed securities interest rate, which had been maintained in the high 3% range in May, rose to 4.225% as of June 19 and showed an upward trend by recording 4.396% on July 31.

Credit card companies without deposits raise funds through their own capital and borrowed money from external sources. Among these, 60-70% is raised through asset-backed securities. The rise in asset-backed securities interest rates means that the funding costs for credit card companies have increased significantly. The rise in funding costs leads to an increase in card loan interest rates in the long term.

In fact, card loan interest rates are showing signs of rising again. According to the Credit Finance Association, as of the end of July, the average interest rates on long-term card loans from Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Hana, Woori, and BC Card ranged from 12.74% to 15.27%, with the upper limit surpassing 15%. Card loan interest rates may rise further. Most card companies reflect changes in asset-backed securities interest rates in card loan interest rates about three months later.

The funding interest rate for Saessal Loans is also on the rise. According to the Korea Federation of Savings Banks, the funding interest rate for Saessal Loans issued in August was recorded at 4.08% per annum. The funding interest rate for Saessal Loans, which was 5.82% per annum in January this year, steadily declined to 3.62% per annum in May but rose again to 3.8% in June and 4.04% in July. It increased by 0.46 percentage points in three months. The upper limit interest rate for Saessal Loans is determined by adding a margin to the monthly fluctuating funding interest rate. The interest rate, which was in the 8-9% range last month, is applied at 11.0% per annum this month (based on Worker Saessal Loans, 10.02% for self-employed).

As interest rates on quick cash channels for low-income households rise, delinquencies are also increasing. According to the Financial Supervisory Service, the delinquency rate on card loans of eight specialized card companies was 3.67% at the end of June, up 0.69 percentage points from the end of last year. The amount of subrogation payments for Saessal Loan borrowers is also increasing. The government’s subrogation payments amounted to 2.8175 trillion won in the first quarter of this year, an increase of 209.9 billion won compared to 2.6076 trillion won at the end of last year.

Experts advise that since card loans and Saessal Loans are quick cash channels for low-income households, measures need to be devised. Professor Seo Ji-yong of the Department of Business Administration at Sangmyung University said, "It is necessary to explore ways to lower interest rates by raising long-term funds mainly through asset-backed securities (ABS) rather than asset-backed bonds issued by card companies," and added, "In the case of Saessal Loans, policy support to lower interest rates through government credit guarantees is also necessary."